Student Debtors Find Much Forgiven in Move to Small Towns

College undergraduates from the class of 2010 on average left school with $25,000 in student loan debt, according to The Institute for College Access & Success in Oakland, California. Photographer: Andy Kropa/Getty Images

July 18 (Bloomberg) -- When Megan Horinek graduated from
Fort Hays State University in Kansas in 2010 with a marketing
degree and $20,000 in student-loan debt, she dreamed of
returning to her hometown of Atwood, 140 miles away.

After a stint with Kraft Foods Inc. in Wichita, she was
able to move home this year, taking a lower-paying job in nearby
Cheyenne County. Horinek was motivated by a new state program
that offers as much as $15,000 toward student-loan repayment for
people who relocate to areas beset by population declines.

“To know that I will be able to have my loans paid off
within five years is even better than just finding a job,” said
Horinek, 23, who works as a consultant for the Kansas Small
Business Development Center. “If I do choose to get married, or
start a family, then I won’t have this hanging over my head.”

State and local governments are joining some private and
nonprofit companies in capitalizing on graduates’ concerns in a
sluggish economy about repaying their student debt to attract
new residents, talent and consumer dollars. Outstanding loans
total about $1 trillion, topping U.S. credit-card debt. In
Kansas, the perk has attracted 411 applicants representing 33
states, according to Chris Harris, who manages the program for
the state Commerce Department in Topeka.

“We were trying to address a loss of young population,”
Harris said. People drawn to the state through the program will
reinvigorate local economies by bringing families with them and
buying houses, he said.

Need ‘Intensified’

Among companies, Tenet Healthcare Corp., which owns or
operates hospitals and health-care facilities across the U.S.,
promotes loan-repayment incentives in its job ads. Some of the
Dallas-based company’s facilities started offering the perk in
2003.

Students in health professions often graduate with high
debt burdens, making companies with loan-repayment plans
especially attractive. Physician-recruitment company Cejka
Search Inc. has seen health-care providers, including St. Louis-based BJC Medical Group, begin to offer repayment plans in
compensation packages for physicians in the past few years.

“The need to use it has become intensified,” said Mary
Barber, vice president for marketing at Cejka.

Kansas allocated $1 million for the first year of its
program, which applies to 50 rural counties that have seen a 10
percent population drop since 2000.

The guidelines for the Kansas program were designed to be
as broad as possible, Harris said. Graduates with associate’s
through post-graduate degrees can qualify for the program, which
spreads payments out over five years. Applicants must have
established residency in a qualified county after July 1, 2011.

Workforce Loss

The city of Niagara Falls, New York, offers a loan
repayment plan to attract young people, and Nebraska looked into
creating one, partly out of concern that the Kansas program
would lure college graduates across their shared border.

More than half of Nebraska’s 93 counties have lost more
than 5 percent of their populations in 10 years, according to
the last census. The state considered offering $7,500 over five
years to student debt holders who moved into those counties.
Budget concerns kept the legislation from moving beyond the
Senate Revenue Committee in its most recent session.

“Most definitely we will lose a qualified, skilled
workforce to Kansas,” Nicole Sedlacek, director of economic
development for Holt County, Nebraska, said in a telephone
interview. The region saw an almost 10 percent drop in its
population between 2000 and 2010, while neighboring counties
lost as much as 22 percent in the past two decades.

Nebraska Bill

The exodus has left companies struggling to find labor.

“We have jobs, but we need people to fill those jobs,”
Chris Roth, president of Deshler, Nebraska-based Reinke
Manufacturing Co., told the state revenue committee in January.
Reinke, which manufactures irrigation equipment, employs 500
people from northern Kansas and central and southern Nebraska
and was looking for 50 employees to work at a new facility.

A loan-repayment bill is likely to come before lawmakers
again, Sedlacek said. She expects some companies themselves will
offer similar perks while they wait for Nebraska to act.

College undergraduates from the class of 2010 on average
left school with $25,250 in student loan debt, according to The
Institute for College Access & Success in Oakland, California.

Loan repayment programs are a smart incentive because a
similar program specifically for dentists, physician assistants
and other medical professionals has attracted workers to
Nebraska since it began in 1994, Sedlacek said.

Health Care

Student-loan assistance is more common in health care than
in other professions. Thirty states and Washington, D.C. have
repayment or consolidation plans for dental or medical workers,
according to a 2011 American Dental Association report. Several
private health-related companies also offer the incentive.

For years, physicians and other medical workers could apply
for loan forgiveness for serving communities in need through the
National Health Service Corp. The private employer programs that
Cejka deals with have no ties to government jobs.

In an annual retention survey by Cejka Search and the
American Medical Group Association, 35 percent of medical groups
surveyed had offered loan repayment to candidates in the past
year, and they included it in about 25 percent of packages.

David Knocke, president of BJC Medical Group, said the plan
helps draw and keep people in high-demand primary-care positions
in rural areas -- and the deal works out for everyone.

“Most of these guys are coming out of school with an
incredible amount of debt,” Knocke said. “If they get a
position that pays that, they can spend their money on other
things.”

Employee Retention

The time is ripe for more employers to use debt repayment
to attract talent, said Paul Combe, president of American
Student Assistance, a debt-counseling nonprofit company.

“It’s so prevalent today -- it’s part of the fabric,”
Combe said of the debt-load burden on graduates. “It’s moved
away from cocktail chatter.”

Since 2006, Boston-based American Student Assistance has
offered full-time employees as much as $2,400 a year for loan
repayment, while part-timers can get a smaller benefit. The
program had 71 participants in 2011. Combe attributed high
employee retention partly to the program, citing the company’s
12 percent turnover rate compared with the 16 percent average
for the Boston area.

Tyler Aronne, who graduated from Salem State University in
2004 with $20,000 in debt and began working at ASA in 2007, gets
about $2,000 a year from the program after taxes. Aronne, now
30, said that has helped him reduce his debt balance to $6,000
and lets him make more than the minimum monthly payment.

“It’s not easy to be single and living alone in Boston,”
he said in a telephone interview. “It became a major reason
that I stayed at the company.”

‘Ripple Effect’

Horinek, the business consultant from Atwood, Kansas, is
Rawlins County’s sole participant in the program so far. It
would make sense for Kansas to allocate more funding and offer
more incentive packages in the future, she said.

“The economic impact - it’s more than just one person,”
said Horinek, who has purchased a home. Her return inspired her
sister to move her family back to Kansas from Nebraska. “More
spots mean more of that ripple effect.”